Educational expenses earmarked for children's schooling are not taxable gifts where the transfer meets a parental obligation.

Money genuinely set apart in a transfer for a parent's obligation to provide education for children does not constitute a taxable gift to that extent. The exemption under section 5(1)(xii) of the Gift-tax Act applied where the amount was specifically earmarked for educational expenses, and that obligation was not limited to higher or specialised education but extended to ordinary school education as well. The Board's instructions could not change the legal character of actual educational expenditure, and the factual finding that the children were already in school supported the conclusion that the sum was genuinely reserved for that purpose. The amount was therefore exempt, and the issue was decided in favour of the assessee.

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Issues: Whether the amount set apart in a transfer for the education of the assessee's children could be treated as a gift and whether the sum of Rs. 1,12,178 was exempt under section 5(1)(xii) of the Gift-tax Act.

Analysis: The amount earmarked for the children's education represented expenditure that a parent is obliged to meet and, to that extent, did not amount to a gift. That obligation was not confined to higher or specialised education but extended to ordinary school education as well. The Board's instructions could not alter the legal character of actual educational expenditure. On the facts, the children were already in school and the appellate finding that the amount was genuinely set apart for educational expenses was supported by the record.

Conclusion: The amount of Rs. 1,12,178 was rightly treated as exempt under section 5(1)(xii) of the Gift-tax Act, and the question was answered in favour of the assessee and against the Revenue.

Ratio Decidendi: Money transferred genuinely and specifically for meeting a parent's obligation to provide education to children does not constitute a taxable gift to that extent and is exempt under section 5(1)(xii) of the Gift-tax Act.

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